Red Hat Grows 1Q17 Revenue to $568M as OpenStack Expectations Rise

Red Hat announced its first quarter fiscal 2017 earnings on June 22, once again renewing its top customers and growing the number of large deals. Red Hat's CEO Jim Whitehurst also spent time on his company's financial analyst call talking about his high hopes for OpenStack.

For the quarter, Red Hat reported revenue of $568 million, up by 18 percent year-over-year. Net income was reported at $61 million, up from $48 million in the first quarter of fiscal 2016.

Looking forward, Red Hat provided second quarter fiscal 2017 guidance for revenue to be in the range of $587 million to $593 million.

"This was a record first quarter for large deals with 45 deals over $1 million, which was up 50 percent year-over-year," Red Hat CFO Frank Calderoni said on the analyst call.

"Cross selling was strong," Calderoni continued, "with a record high of 80 percent of the top 30 deals including one or more components from our group of Application Development and emerging technologies offerings."

Just prior to the earning announcement, Red Hat publicly revealed that it acquired privately held API gateway vendor 3scale. Financial terms of the deal are not being publicly disclosed, and Red Hat has stated that the deal is not material to Red Hat's earnings.

Red Hat OpenStack Platform Continues to Gain Steam

Whitehurst spent a lot of time on the call talking about the Red Hat OpenStack Platform (OSP). He noted that Red Hat today has hundreds of production deployments across the globe and even more proof-of-concepts are underway including recent wins with Cambridge University, Paddy Power Betfair, FastWeb, NASA JPL, and Produbon, the IT services division of Santander Bank.

When asked about the deal size for OpenStack wins, Whitehurst cautioned that it takes time for organizations to grow large deployments.

"Rarely do you see $1 million initial deployment of OpenStack," Whitehurst said. "You start, you put applications on it and you grow with it over time."

Whitehurst added that the Red Hat OSP deployments today can reach up into six figures, and he expects they will scale as the applications go on there.

"So it's still not having a significant impact on our revenue, but you can kind of start to see the traction as the application portfolios that are running on the infrastructure grows, we will see it impacting over the next year or two," Whitehurst said.

Overall, it is Linux itself that remains the primary foundation for Red Hat's success, as Whitehurst continues to see his company take share from both Linux rivals as well as Microsoft Windows. Whitehurst said Linux wins the majority of net new workloads.

"If you look at something like Hadoop, I think it would be very, very, very rare to find a Hadoop workload that is running on Windows; it is 90 percent Linux," Whitehurst said. " If you look at containers right now, 100 percent are on Linux because it's Linux-native technology. "